Mobile Capital Networkhttps://www.mobilecapital.net
Wed, 20 Mar 2019 13:57:13 +0000en-CA
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1 https://wordpress.org/?v=5.2.1Liberals Drop a SR&ED Surprisehttps://www.mobilecapital.net/liberals-drop-a-sred-surprise/
Wed, 20 Mar 2019 13:56:18 +0000http://www.mobilecapital.net/?p=407On March 19, the Liberal government announced the details of the 2019 Federal budget. One of the big surprises in the budget was the announcement that the program will be enhanced for CCPC going forward. Buried in the various innovation announcements, the government announced a change to the rules around accessing the 35% enhanced ITC […]

]]>On March 19, the Liberal government announced the details of the 2019 Federal budget. One of the big surprises in the budget was the announcement that the program will be enhanced for CCPC going forward. Buried in the various innovation announcements, the government announced a change to the rules around accessing the 35% enhanced ITC rate for SR&ED. For fiscal years ending after March 31, 2019, the enhanced rate will be accessible to all CCPC regardless of taxable income, but still subject to taxable capital rules.

This change is specifically aimed at growing Canadian companies who have exceeded the $800,000 taxable income threshold which previously eliminated access to the enhanced ITC rate. Now companies can continue to scale up their companies without handicapping their ability to generate a profit. This initiative by the government is welcome, as it puts Canadian companies in a stronger position to compete globally and incentivize companies to continue their R&D efforts even after achieving a product-market fit.

At MCN, we work with clients to put together a comprehensive R&D strategy. With our team of researchers and former technology executives, MCN can provide insight and structural advise in how to position your R&D efforts to maximize their eligibility under various programs. Rather than passively look at the work performed, companies can leverage MCN’s in-house technical expertise to design and augment SR&ED projects to ensure compliance, eligibility and return on your R&D investments.

]]>Innovation and the 2017 Budgethttps://www.mobilecapital.net/innovation-2017-budget/
Wed, 29 Mar 2017 12:45:19 +0000http://www.mobilecapital.net/?p=360We thought we would try something different this year. A lot of really good articles have been written about the 2017 Canadian Federal Budget. Rather than highlighting key points like in previous years, we’ve decided to refer you to those articles that provide a good explanation of key points of the budget. Betakit has done […]

]]>We thought we would try something different this year. A lot of really good articles have been written about the 2017 Canadian Federal Budget. Rather than highlighting key points like in previous years, we’ve decided to refer you to those articles that provide a good explanation of key points of the budget.

At the moment, we at MCN are reserving judgement on the 2017 budget. While it is nice to see innovation receiving more attention from the government, we have yet to see exactly how the money will be used. In the coming weeks and months, we expect to see a more concrete plan laid out through agencies such as the NRC, CRA and FedDev with respect to how funds will be made available to companies. We’ll wait till then before we give our stamp of approval.

]]>SR&ED Is Not About Your Product!https://www.mobilecapital.net/sred-not-product/
Thu, 16 Mar 2017 17:28:21 +0000http://www.mobilecapital.net/?p=346Entrepreneur A: “Our mobile application is the first of it’s kind, and saves people millions of dollars” CRA: “That’s nice, but sorry, your work isn’t eligible” — Entrpreneur B: “Our system was difficult to build, there was no documentation, and it was a black box” CRA: “Sorry not eligible” — Entrepreneur C: “Our system works faster […]

]]>Entrepreneur A: “Our mobile application is the first of it’s kind, and saves people millions of dollars”
CRA: “That’s nice, but sorry, your work isn’t eligible”

—

Entrpreneur B: “Our system was difficult to build, there was no documentation, and it was a black box”
CRA: “Sorry not eligible”

—

Entrepreneur C: “Our system works faster than our competitors in the field, and it did it in a totally new way”
CRA: “Sounds like there might be something, but sorry, not eligible”

One of the biggest misconceptions about the SR&ED program is that it is about the products you are developing. While you may be solving problems and use technology to achieve things that were previously not possible, this is actually not what the program is intended to fund. This is easily the biggest problem that entrepreneurs face when describing their work for the purposes of a SR&ED claim. The SR&ED program is actually about knowledge, not your product. In CRA parlance, what a product is capable of doing, or the actual problem solved is known as a “Technological Achievement” and is not one of the eligibility criteria. What you learned in solving the problem, and the outcomes of the various approaches/experiments undertaken is actually your “Technological Advancement”, and is one of the components of eligibility. A good SR&ED consultant will work with your team to understand what you achieved, and what actual knowledge was generated. The underlying techniques that make your product do what they do is where you need to start looking when discussing SR&ED. By looking at the approaches taken to solve the problem, and the understanding of how those experiments generated new knowledge is what needs to be presented on the technical report, and more importantly when a review occurs.

]]>Subcontractors and SR&ED ‘Loopholes’https://www.mobilecapital.net/subcontractors-sred-loopholes/
Tue, 03 Jan 2017 15:43:49 +0000http://www.mobilecapital.net/?p=339Subcontractors who are Canadian (i.e. companies operating in Canada), or individuals in Canada hired on a subcontract basis and are performing SR&ED eligible work, can be claimed under the program. The difference between subcontractors and employees is simply the refund rate. Through the program, a higher return rate is applied to salaried employees versus subcontractors. There is another […]

]]>Subcontractors who are Canadian (i.e. companies operating in Canada), or individuals in Canada hired on a subcontract basis and are performing SR&ED eligible work, can be claimed under the program. The difference between subcontractors and employees is simply the refund rate. Through the program, a higher return rate is applied to salaried employees versus subcontractors.

There is another scenario involving subcontractors that people mistakenly think is a loophole to be exploited. In some cases, a company will hire a Canadian subcontractor (typically a company) to perform some SR&ED eligible development on their behalf. The Canadian subcontractor then outsources this work offshore. Some outsourcing companies present this as a way to win business as they can lower their costs to the client, while still allowing the client to claim SR&ED on their work. In fact, this is not a loophole, and is something that the CRA accounted for long ago. Through a directive, that can be found here http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/cntrctxpndtrssrdprfmdbhlfclmnt-eng.html#s9_0, the CRA basically states that the work performed by a Canadian subcontractor who in turn outsources the work outside of the country, SR&ED cannot be claimed on that portion of work. There are a few other nuances, we’ve tackled the gist of it. This rule has been in place for many years now, but few people take the time to read the directives that refine the rules of SR&ED.

Knowing the above, some companies will still try to file SR&ED on the entire subcontracted amount, with the attitude that they “didn’t know”, or “played the odds of getting caught”. This is tantamount to tax fraud, as amounts claimed are being misrepresented. In the eyes of the CRA, claiming ineligible amounts is the same as underreporting income, or claiming credits on things for which you are not eligible. Similarly, it is not sufficient to rely on the representations of your subcontractors who say you can claim on their outsourced work. At the end of day, you are the one filing your SR&ED claim, and if such a misrepresentation gets noted, the best case is your claim gets reduced, and in the worst case, you can have your entire claim rejected, and get fined.

If you have any questions about SR&ED and subcontract arrangements, feel free to contact us.

]]>SR&ED and Due Diligencehttps://www.mobilecapital.net/sred-due-diligence/
Wed, 14 Sep 2016 14:54:32 +0000http://www.mobilecapital.net/?p=325In today’s blog post, we’ll look at the misunderstood role of due diligence and how it pertains to SR&ED. Due diligence is a critical component of the ‘Technological Uncertainty’ which is one of the three main criteria of the program. In order to establish that a technological uncertainty exists, an organization must perform some due […]

]]>In today’s blog post, we’ll look at the misunderstood role of due diligence and how it pertains to SR&ED.

Due diligence is a critical component of the ‘Technological Uncertainty’ which is one of the three main criteria of the program. In order to establish that a technological uncertainty exists, an organization must perform some due diligence to determine if the uncertainty is readily solvable using available knowledge, or if no information exists. Without performing this critical step, it is not possible to establish a valid technological uncertainty.

There are two main misconceptions we see regarding due diligence and SR&ED.

First, due diligence is a required component of the program, however the time spent in performing this task is not eligible. The reason for this is that you must establish that a technological uncertainty exists before you can begin your systematic investigation and/or experimental development and your due diligence precedes the establishment of the uncertainty. Once you have performed your due diligence and established your technological uncertainty, then your SR&ED eligible work can begin.

Second, many claimants do not believe it is necessary to document their due diligence since it is not eligible under SR&ED. To put it lightly, this assumption is dead wrong! You must document all of this work in order to show the CRA that you conducted a reasonable search for information, and are attempting to evaluate the criteria of SR&ED. In order to show that due diligence was conducted, you do no need to write essays or anything of the like. Simply taking a screen shot of searches conducted, or saved URLs of pages that were referenced will suffice. And like all SR&ED documentation, it is also helpful to ensure that this information is date stamped wherever possible.

For more information about due diligence and SR&ED compliance, feel free to contact us.

]]>SR&ED and the Administrative Reviewhttps://www.mobilecapital.net/sred-administrative-review/
Thu, 23 Jun 2016 16:23:59 +0000http://www.mobilecapital.net/?p=314On May 30, the CRA announced a new form, known as the RC532 with an eye towards improving the SR&ED administrative review process. The CRA hopes that this form with help monitor and track SR&ED reviews (for the purpose of training and policy clarification), making reviews more consistent. The form itself is straightforward and does make […]

]]>On May 30, the CRA announced a new form, known as the RC532 with an eye towards improving the SR&ED administrative review process. The CRA hopes that this form with help monitor and track SR&ED reviews (for the purpose of training and policy clarification), making reviews more consistent.

The form itself is straightforward and does make the filing a request for an administrative review somewhat simpler. The claimant is now (1) asked to explain the nature of the concern, (2) whether these concerns were brought to the attention of the reviewer and (3) were the concerns brought to the attention of the manager. These three questions (which have always existed) formalize the process a claimant must go through in order to apply for an administrative review.

It remains to see how effective this form will be in dealing with the frustrations of the claimant. The criteria for an administrative review has not changed, nor has a timeline been established by which these matters will be addressed, or when any changes will be affected. It is also not clear how the information in these forms is going to be used by the CRA to improves its internal processes.

More importantly, it is important to understand that the SR&ED administrative review is about due process and not eligibility. This was the case before the RC532 existed, and is still the case today. Even though there is a checkbox on the RC532 with eligibility listed as a reason to request a review, according to the CRA’s Guidelines for resolving claimant’s SR&ED concerns, the administrative review is about claimant being given due process, not about disagreements over eligbility. The administrative review is about whether or not financial and technical reviewers followed their policies and procedures in evaluating a claim. Given that this is the objective of an administrative review, it is unlikely that any claim will be reopened due to disagreements about eligibility.

If you are considering filing an RC532 to request an administrative review for a claim submitted, and would like a free, no-obligation second opinion on your chances of success on an appeal, feel free to contact us.

]]>When the CRA Calls About Your SR&ED Claimhttps://www.mobilecapital.net/cra-calls-sred-claim/
Wed, 25 May 2016 19:43:04 +0000http://www.mobilecapital.net/?p=309Oftentimes when the CRA is reviewing an SR&ED claim, a reviewer will call the claimant either to get more information or set up an onsite visit. CRA reviewers will often re-assure the claimant that nothing is wrong at this stage, and they are simply gathering information. This is not entirely accurate, and as a claimant you […]

]]>Oftentimes when the CRA is reviewing an SR&ED claim, a reviewer will call the claimant either to get more information or set up an onsite visit. CRA reviewers will often re-assure the claimant that nothing is wrong at this stage, and they are simply gathering information. This is not entirely accurate, and as a claimant you should be concerned. If a CRA reviewer calls you about your SR&ED claim, it means that the claim has been selected for review. At this stage it is unlikely that the CRA will tell you whether you are subject to a desk, onsite technical or financial review. Consequently, it is important to make sure you plan to set aside some time to answer any queries the CRA reviewer(s) may have in regards to your claim. Here are some simple things you can do to help organize the process and determine who and how much time will be required to address the requests of the CRA.

Don’t panic! In our experience, CRA reviewers are trying to determine the likelihood of errors in your claim, and if you understand the criteria of the program.

Ask if any reviewers have been assigned to your claim, what are their roles/titles are and their contact information. This will help you gauge what type of review is being undertaken, and the corresponding resources at your organization that will be required. If a financial reviewer is assigned, then you will likely need the time of your bookkeeper to gather up GL, subcontract, material and payroll details. If a technical reviewer is also assigned, you will need your (lead) technical staff to address any technical questions about the work performed as well as how the eligible hours were determined.

If the CRA reviewer is looking to schedule an onsite visit, ask them who will be attending, and ask them to propose some dates. It is not necessary to immediately agree upon a date when the CRA calls, but you should make this a priority once you have determined the availability of your internal resources (including your SR&ED consultants).

Ask for an agenda. In our experience, the CRA is not always forthcoming with a meeting agenda when scheduling an onsite visit. An agenda from the CRA will again help you determine how much time to set aside for the visit – anywhere from a few hours for an FTCAS visit, to a full day (or more) for a full review. It will also help you determine what information will need to be gathered to make their visit as efficient and fruitful as possible.

Ideally, your SR&ED consultant will quarterback this process for you. When the CRA calls, let your consultants know about the call, and provide them with any information you received during the call. Your consultant should then contact the CRA to move the process along. At MCN, we provide comprehensive SR&ED audit support services. If you have questions about a review, even if we have not prepared your claim, please feel free to contact us.

]]>Innovation and the 2016 Federal Budget – Synopsishttps://www.mobilecapital.net/innovation-2016-federal-budget/
Thu, 24 Mar 2016 14:45:47 +0000http://www.mobilecapital.net/?p=303The 2016 by the Liberal government has enacted new provisions for innovation and green technology. This government has re-emphasized that innovation is a key driver of the economy, and must invest in order to become and world leader in technology creation. To achieve this objective, the government has targeted investment to 4 specific streams to […]

]]>The 2016 by the Liberal government has enacted new provisions for innovation and green technology. This government has re-emphasized that innovation is a key driver of the economy, and must invest in order to become and world leader in technology creation. To achieve this objective, the government has targeted investment to 4 specific streams to boost innovation.

Entrepreneurship – Extended investment through enhanced funding for incubators and accelerators, internships, apprenticeships and immigration policy. By 2017-18, the government has promised to provide funding of $150 million dollars.

Innovation Infrastructure – Increased funding to the NRC – IRAP and development agencies across Canada. IRAP in particular is earmarked to receive an additional $50 million dollars in 2016-17.

Commercialization and Growth – Scaling the mandates of BDC, EDC and extending trade agreements across the world.

On a related side note, the federal government has reduced the small business tax rate to 10.5%, and the refund percentages for 2016-17 have not been changed. While we believe that more measures could have been taken to improve innovation support in Canada, this is generally a good budget for companies conducting research and development activities in Canada. It has also reinforced the notion that the Canadian government is committed to supporting the growth of broad-based industry innovation ranging from agriculture and mining, to high-tech and biotechnology to green energy technologies.

More details about innovation support within the 2016 federal budget can be found in the budget summary at http://www.budget.gc.ca/2016/docs/plan/ch2-en.html#_Toc446106698. We will continue to add more information to this blog as specific programs and measures are announced to provide more details regarding access to this funding.

]]>Can a SR&ED Claim Be Retroactively Reviewed?https://www.mobilecapital.net/can-a-sred-claim-be-retroactively-reviewed/
Tue, 05 Jan 2016 16:13:45 +0000http://www.mobilecapital.net/?p=294The majority of SR&ED claims submitted are accepted without being subjected to a detailed review. In these cases, the claim is considered “accepted as filed”. When this occurs, the CRA will send out a letter stating that the claim was accepted, but no determination was made about the eligibility of the work, but that they […]

]]>The majority of SR&ED claims submitted are accepted without being subjected to a detailed review. In these cases, the claim is considered “accepted as filed”. When this occurs, the CRA will send out a letter stating that the claim was accepted, but no determination was made about the eligibility of the work, but that they are accepted the claim in good faith.

Typically once an SR&ED claim has been accepted as filed, it is not subject to reviews retroactively. This means that if you file a claim in the next fiscal year which may be a continuation of previous work and is rejected, in our experience it will not trigger a review of a claim previously submitted. With that said, the CRA has outlined several instances where a SR&ED claim that was was previously accepted as filed may be sent back for re-assessment (i.e. reviewed and possibly reduced or rejected).

These instances include (but are not limited to):

expenditures claimed in a given fiscal year and are not paid within 180 days of the end of that fiscal year

restatement of a prior year’s income of the company or an associated company’s income

The items listed above are direct examples taken from CRA SR&ED claim acceptance letters. The first three items in the list all relate to financial variables that can affect the SR&ED return rates and/or have specific financial treatments that must be followed. Fraud or misrepresentation is a criminal offence and may lead to charges over and above the rejection of a prior SR&ED claim.

While the risk of a claim being reassessed after being accepted is extremely small, it is essential to maintain your supporting documentation both on the financial and technical side. As the SR&ED legislation is a part of the Income Tax Act, claimants are required to keep these records for six years from the end of the fiscal year to which they relate.

]]>2015 Ontario Budget: OIDMTC Changeshttps://www.mobilecapital.net/oidmtc-changes-with-2015-ontario-budget/
Fri, 24 Apr 2015 14:24:19 +0000http://www.mobilecapital.net/?p=263On April 23, 2015 the Ontario government tabled a 2015 budget that proposes significant changes to the programs aimed at supporting film, television and digital media. Ontario Interactive Digital Media Tax Credit (OIDMTC) Eligibility criteria for the program will be restricted to supporting entertainment products as well as educational products for children under the age […]

]]>On April 23, 2015 the Ontario government tabled a 2015 budget that proposes significant changes to the programs aimed at supporting film, television and digital media.

Ontario Interactive Digital Media Tax Credit (OIDMTC)

Eligibility criteria for the program will be restricted to supporting entertainment products as well as educational products for children under the age of 12. The list of specifically excluded products will be extended to include products centered on news and public affairs. Exclusions to promotional products will be further strengthened. These changes are effective immediately and will apply to expenditures incurred after April 23, 2015. Products which qualified for the credit under the old rules but are no longer eligible will qualify for relief with respect to expenditures incurred prior to April 24th, 2015.

The “all of substantially all” rule requiring that at least 90% of the product be developed in Ontario by the company claiming the credit is changing. The new rule requires that 80% of total labour costs for eligible products be attributed to qualifying salaries and wages as well as qualifying remuneration (contract payments to Ontario freelancers operating either as sole proprietors or through personal service corporations). In addition, at least 25% of the total labour costs for eligible products must be comprised of wages paid to the employees of the qualifying corporation. The new rule will be applied retroactively and will affect all products awaiting certification regardless of the completion date. Already certified products will not be affected.

On the brighter side, investment in the Interactive Digital Media Fund (IDMF) will increase. In the current fiscal year IDMF will receive $6 million and starting next year $10 million per year. IDMF criteria are broader than those of OIDMTC and the government has positioned the increase in IDMF financing as an offset to narrowing OIDMTC eligibility criteria.

It is important to note that the Budget does not specify the details of the proposed new regime. The specific information and examples of eligible products are to be announced in a bulletin at a later date.

Film and Television Tax Credits

Ontario Film and Television Tax Credit (OFTTC) – The rate is reduced from 25% to 21.5%. The new rate applies to expenditures incurred after April 23, 2015. The government also is introducing changes affecting eligibility of certain expenditures.

Ontario Computer Animation and Special Effects Tax Credit (OCASE) – The rate is reduced from 20% to 18%. The new rate applies to the expenditures incurred after April 23, 2015. Further, in order to claim OCASE for productions started after April 23, 2015, the productions must receive either OFTTC or OPSTC.

Ontario Film and Television Tax Credit (OFTTC) – The rate remains intact. Further, the government is filing a regulation that would stop treating government equity investment in a production as government assistance.